Summary
- Performance held up in a quarter rocked by COVID-19.
- The bank is, of course, exposed to New York and the Tri-State area, and these were and still have been areas largely impacted by lockdowns and could be again.
- Valuation remains attractive with a discount of over 30% to book.
- Loans are continuing to grow, and we think the market fear is overdone.
- A nice 7.5% yield.
- This idea was discussed in more depth with members of my private investing community, BAD BEAT Investing. Get started today »
- Prepared by Stephanie, Analyst at BAD BEAT Investing
New York Community Bancorp (NYCB) is a name we have traded a few times recently. We think it is setting up for another entry. While there are very near-term headwinds, the stock is a bargain under $9 for a swing over $10.00. In short, it is setting up for another trading opportunity. Financials have been a topic of discussion over at BAD BEAT Investing again, and we think you are going to see a rotation into this sector. While COVID-19 has certainly weighed on financials, we still like NYCB. Scalping gains of 10-15% is what many of us do, and we think that longer term, you can hold this one into the teens if trading is not for you, but to be clear, you are missing the chance to pad your returns. Take the opportunity the market gives you. With the most recent dup, this is another opportunity to get into the stock based on valuation, the dividend, and the long-term prospects for financials.
The worst of COVID-19 seems behind us. There are fears regarding whether it resurges into the fall, and those are weighing, as are the current impacts of the virus and, more importantly, the response efforts. The bank is, of course, exposed to New York and the Tri-State area, and these were, and still have been, areas largely impacted by lockdowns. While we keep getting updates on vaccines and testing, some resurgence fear is weighing on banks. So are the unemployment rates, and business being closed or seeing reduced volumes. Low rates are an issue. But you see, this is the time to be buying before things do get a lot better - and they will. That is the long-term view. Short term, shares will continue to oscillate. Buying under $9 is a great price. The most recent quarter had seen the bulk of the impacts of shutdowns. And still, it was a decent quarter all things considered. We are definitely bullish on the name as we move forward, but if you can get a pullback, then great.
Overall, this is a well-run regional bank with an over 7.5% dividend yield, which we think is safe. It is likely Q3 will be tough like Q2, but it's not about what is "happening now", it is about where things are going in the medium term. That is why we like the financials and still like NYCB. It is going to work here short and long term. Keep in mind that unlike some of the major global banks, this regional bank is largely focused on traditional banking. Each year, we are seeing more assets under management, and despite the pain from COVID-19, the quarter was strong. Revenues were up 10.2% in Q2, and earnings per share was up a penny (5%). EPS came in at $0.21. We suspect Q3 will be tough, but we really like the share price relative to book value.
Below book value
Why are we bullish the stock again? Well, like before, we see a value opportunity. The bank is trading way below book value. And book value expanded year over year to $13.34. This was also up from $13.15 last quarter. That's a huge discount. We also like the name on this decline because it is not about where the company has been, it's about where it is going. We think book value will hold up. We actually thought it would decline a bit in Q2, but it rose. We think it remains stable. For those doing the math, at $9 you would be getting a $4.34 discount, or a 32.5% discount-to-book. That is attractive.
